During the past month, global stock markets continued the downward trend set in September with the MSCI World Index and the S&P 500 down (in US$) by 3.1% and 2.8% respectively, driven once again by the decline in the large technology stocks from their highs in August.   There was a slight increase (0.2%) in the value of the pound as compared to the US$ and hence little impact on the performance of the indices in GBP.  The large cap stocks performed poorly during the month with the FTSE 100 declining by 5.8% as compared to the Small Cap Index which increased by 1.1%.  The FTSE 250 was down by 1.1%, the AIM All Share Index declined by 1.5%, while the Fledgling Index declined by 0.2% during the month.

Contrary to what has happened in previous months, our overall performance was improved by our exposure to the property trusts which held their value during the month as more and more REITs confirmed that distributions would be higher than expected.   As a result, our portfolio performed extremely well, increasing by 0.1% during the month.  After providing for expenses the NAV was unchanged during the month.

In recent weeks, new cases of Covid-19 have increased across the United Kingdom, causing a partial re-imposition of lockdown restrictions which could threaten the country’s economic rebound as the pace of the rebound was already showing signs of losing momentum.  The latest Red Flag Alert for Q3 2020 which is research published by Begbies Traynor, recorded 557,000 businesses in ‘significant distress’.  Industries reflecting the largest increase in distressed businesses were food and drug retailers, construction and the real estate & property sectors.   Notwithstanding the fact that the Government’s support measures have saved thousands of businesses from certain insolvency in the short term, the recently launched reduced version of the furlough scheme and the end to Government guaranteed loans will undoubtedly lead to the demise of many who were financially stretched before the advent of Covid-19.  We do not believe that any of the companies in our portfolio fall into this category.

However, until the direction of the Brexit negotiations and the potential success of a Covid-19 vaccine is a little clearer we have chosen to do very little, consolidating our REIT exposure to those with either growth opportunities or higher dividend yields.  Accordingly, we have sold our holdings in Picton, Regional REIT and Custodian REIT while adding to our holding in AEW UK REIT and Yougov.  Cash comprised 2.6% of the portfolio at month end.